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ETFs are seeing a record surge in popularity.
The industry hit a milestone with more than 3,000 ETFs trading simultaneously for the first time ever this month — a 30% increase since December 2020, according to Morningstar.

And this year investors are taking more active strategies, such as single-stock ETFs that offer traders exposure to the daily performance of a singular stock like Tesla or Apple.
“We started off with basically taking very broad index funds — SPY [SPDR S&P 500 ETF Trust] was the first one — and then the industry over the years built all these interesting overlays,” Nick Colas, co-founder of DataTrek Research, told Bob Pisani on CNBC’s “ETF Edge” this week.
Included were sector and emerging funds, as well as funds specified to themes such as clean energy and legal marijuana, Colas said, as part of a shift from disruptive innovation to mainstream.
“Investors now are really spoiled for choice among just being able to pick not only the big sector funds or the big overall funds but any kind of fund they think might be interesting,” he added.
However, this move toward specificity of thematic ETFs like cybersecurity ETFs has its risks, according to investment consultant Charles Ellis, the author of two upcoming books, “Inside Vanguard” and “Figuring It Out.” While Ellis believes those who go into ETFs to later dive into index funds will do fine, those choosing highly specialized ETFs are at risk of making disastrous mistakes.

“The more you get specific, the more the odds are high that you won’t be able to make a rational long-term decision and you will get suckered into making, because we’re all human beings, an emotional short-term decision, and you won’t like the outcome in the long run,” Ellis said.

Another milestone

With quick growth in the number of ETFs, investors will soon celebrate another milestone. In January 2023, the first ETF — SPDR S&P 500 ETF Trust — will turn 30 years old. Now the largest ETF and one of the world’s largest funds, SPY is valued at $350 billion in assets under management.
Colas said SPY was exactly the right product to start with, unlike emerging market ETFs which had lousy returns after its boom and bust cycle.
The growth of ETFs and more active funds stems in part from people in mediocre mutual funds converting to ETFs, said Pisani. Colas said there are fewer associated fees with ETFs than mutual funds, as well as less of a tax liability.

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Visitors walk past a Boeing board during the Farnborough Airshow, in Farnborough, on July 18, 2022.
Justin Tallis | AFP | Getty Images

Check out the companies making headlines in midday trading.
Boeing — The aerospace company was down 5% after it reached a $200 million settlement on charges of misleading investors following two of its jetliners being involved in deadly crashes.

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FedEx — Shares were down about 3.4%, hitting a new 52-week low. The delivery company announced plans to increase rates between 6.9% and 7.9%.
Costco — The wholesaler, which said it would not raise membership prices this week, saw shares drop 4.3%. Costco released earnings that beat expectations and showed year-over-year gains, but also said it was experiencing higher labor and freight costs.
CalAmp — The software company plummeted 16.8% despite an earlier rally. CalAmp reported smaller losses than anticipated in its second-quarter earnings, while also noting record-setting revenue within subscription and software categories.
Ally Financial — Shares of the financial services company dropped 2.7% after Wells Fargo downgraded the stock to equal weight from overweight. The Wall Street firm said it will be difficult for Ally to outperform as used vehicle price continues to decline and as the consumer works through the headwind of inflation.
Qualcomm — Shares declined 2% despite JPMorgan saying reiterating the stock as overweight due to the wireless company’s automotive opportunities.

fuboTV — Shares jumped 7.9% after Wedbush upgraded the streaming service to outperform from neutral, saying fuboTV is at “compelling entry point” for investors.
Domino’s Pizza — Domino’s Pizza advanced 3.1% after BMO upgraded the stock to outperform, forecasting a rebound in the fast-food chain on the back of strong demand.
Coinbase – Shares of Coinbase fell 1.7% after JPMorgan lowered its price target and reiterated the stock as neutral, citing concerns about weak activity levels in the crypto sell-off. Although the cryptocurrency exchange has been diversifying its services and revenue streams, that business still accounts for the majority of its revenue, and trading activity tends to stall when prices are low. Crypto assets sold off with the rest of risk assets Friday.
Advanced Micro Devices — Shares hit a new 52-week low for the semiconductor company, falling 2.2%. The drop comes despite Morgan Stanley reiterating the stock amid what it sees as a correction of broad-based semis taking place.
Marathon — Shares of the oil titan fell 11%, defying a positive report from Evercore ISI that viewed the company as having strong free cash flow.
— CNBC’s Yun Li, Tanaya Macheel and Sarah Min contributed reporting

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Traders work on the floor of the New York Stock Exchange on September 21, 2022 in New York City.
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The extreme market volatility is not causing hedge funds to back down.
Hedge funds’ total gross trading flow, including both long and short bets, rose for five weeks in a row and had the largest notional increase since 2017 last week heading into the Federal Reserve’s rate decision, according to Goldman Sachs’ prime brokerage data. In other words, they are putting money to work in a big way to capitalize on this market volatility for clients, likely mostly from the short side.

The industry was dialing up exposure at a time when the Fed rushed to hike interest rates aggressively to tame decades-high inflation, raising the odds for a recession. Bank of America’s Michael Hartnett even called investor sentiment “unquestionably” the worst since the financial crisis.
“Uncertainty over inflation and tightening policy may spur more volatility. This speaks to hedge fund strategies,” said Mark Haefele, global wealth management CIO at UBS. “Hedge funds have been a rare bright spot this year, with some strategies, like macro, performing particularly well.”

Arrows pointing outwards

Hedge funds gained 0.5% in August, compared to the S&P 500’s 4.2% loss last month, according to data from HFR. Some big players are excelling in the market chaos. Citadel’s multistrategy flagship fund Wellington rallied 3.74% last month, bringing its 2022 performance to 25.75%, according to a person familiar with the returns. Ray Dalio’s Bridgewater gained more than 30% through the first half of the year.
On the short side, hedge funds didn’t turn overly bearish despite the tough macro environment. JPMorgan’s prime brokerage data showed the community’s shorting activity has been less active than in June, and shorts added have been more focused on exchange-traded funds than single stocks.
“In terms of how much HF shorting we see, it’s not reached the extremes of June and it has been more in line with the magnitude of longs added,” JPMorgan’s John Schlegel said in a Wednesday note. “It seems there’s a lack of willingness to get as extremely bearish as funds were earlier this year.” More

In an internal meeting, Celsius’ leadership discussed a plan to issue an “IOU” cryptocurrency to customers who signed up for some of its accounts.
The company says it is building out a new system to track its assets, which was formerly done using a simple Excel spreadsheet, according to sources familiar with the company.
In the leaked audio of the meeting, Celsius’ leadership says employees’ funds will be subject to the same rules and timeline as customer assets.

Since bankrupt crypto lender Celsius froze withdrawals in June, customers’ funds have been in limbo. Now, leaked audio shared with CNBC reveals a preliminary plan to compensate them.
The company wants to issue an “IOU” cryptocurrency  to customers that signed up for some of its accounts. 

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44 minutes ago

The recording was provided by Tiffany Fong, who says she is one of the 500,000 Celsius customers with funds locked in the platform. Fong says she received the audio from a self-identified employee, who stayed anonymous during their communications.
CNBC was not able to verify that the leaked audio is the entire exchange from an internal meeting on Sept. 1. However, CNBC spoke with former employees who verified that the recording is authentic. In the audio, Chief Technology Officer Guillermo Bodnar says the plan is in “early stages.” What’s laid out may have changed in the weeks since the call.
In the recording, Celsius co-founder Nuke Goldstein outlines a compensation plan for customers who deposited assets in Celsius’ “Earn” account, for which Celsius had promised yields as high as 17%. 
Goldstein said Celsius will release “wrapped tokens,” which will serve as an IOU for customers. The tokens represent the ratio between what Celsius owes customers and what assets they have available. He said if customers wait to redeem their tokens, there’s a better chance that the gap between what Celsius has and what it owes will be smaller.
That’s a risky wager on an increase in value for a nascent token from a company that’s just been through bankruptcy. Goldstein said the value is likely to go up because Celsius has revenue coming from its mining business, staked ETH and other coins that may become liquid. 

Celsius also intends to allow customers to redeem these tokens, according to Goldstein. He said the tokens can be redeemed on Celsius for a value likely less than what they are owed or on crypto platforms like Uniswap, allowing the market to determine the tokens’ value.

In this photo illustration, the Celsius Network logo is displayed on a smartphone screen beside Bitcoin cryptocurrencies.
Rafael Henrique | SOPA Images | Lightrocket | Getty Images

The reimbursement isn’t the only plan Celsius has in the works. In a portion of the recording shared exclusively with CNBC, Bodnar said the company is also building a transaction management system, which is designed to track the company’s blockchain assets. That would include the assets, the price at which they were purchased and how much they were worth when they sold.
Celsius, which said it managed billions of dollars in customer assets, never had sophisticated software to properly manage and track its assets, according to sources familiar with the company. These sources, who asked not to be named because of confidentiality restraints, also said the data was being tracked manually, on a simple Excel spreadsheet.  
On the call, Bodnar said the goal for building out this new system is transparency.
“…[T]ransparency reflected not just in how we communicate, but making sure that everything that is done within our platform is traceable, is auditable, end to end – we don’t have anything to hide,” he said.
Goldstein also emphasized that there was a lot of disinformation about the company circulating on Twitter and that employees should only rely on information provided in court documents and the town halls run by the CEO Alex Mashinsky. 
“If you go to Twitter, bring an umbrella because it’s raining bull—- over there,” Goldstein said. “This is your opportunity to get the truth. If we don’t tell you the truth of what we know – we go to jail. Now, I don’t know if we go to jail…but it’s not good.”
In the Q&A portion of the event, one questioner asked where employees stood in terms of getting their locked funds released from the platform. Goldstein said employees will not be prioritized over customers.
“The employees are not last or first,” Goldstein said. “You are a customer as well. We are a customer. That means that we are at the same level of the customers.”
CNBC reached out to Celsius for comment about their reimbursement plan and the status of their transaction management system, but the company hasn’t responded.
WATCH: Bitcoin dips below $19,000

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Check out the companies making headlines before the bell:
FedEx (FDX) – FedEx remains on watch this morning after announcing a 6.9% increase in shipping rates and plans to cut another $4 billion in annual costs. FedEx fell 3.2% in the premarket.

Costco (COST) – Costco lost 3.3% in the premarket despite reporting better-than-expected profit and sales for its latest quarter. The company reported operating margins that were slightly below consensus. Costco said it has no immediate plans to raise membership prices, but said it would happen at some point.
Boeing (BA) – Boeing will pay $200 million to settle SEC charges that it made misleading claims about the safety risks of its 737 MAX jet after two of the planes were involved in fatal crashes. Former CEO Dennis Muilenburg will pay $1 million as part of the settlement, with both parties neither admitting nor denying wrongdoing. Boeing lost 1.8% in the premarket.
Raytheon Technologies (RTX) – Raytheon won a $985 million Pentagon contract to develop hypersonic attack cruise missile prototypes, beating out rivals Boeing and Lockheed Martin (LMT).
CalAmp (CAMP) – The “internet of things” software company’s stock rallied 3.5% in premarket action after it reported a smaller-than-expected quarterly loss with revenue that topped analyst forecasts. CalAmp saw record software and subscription services revenue during the quarter.
Ally Financial (ALLY) – The financial services company’s stock fell 2.7% in the premarket after Wells Fargo downgraded it to “equal weight” from “overweight”. Wells said Ally will feel pressure from Fed rate hikes and an accelerating decline in used vehicle prices, which impacts yields from leases.

Qualcomm (QCOM) – Qualcomm said its future automotive business pipeline increased to $30 billion in orders, up by more than $10 billion since July. The increase came primarily from orders for its Snapdragon Digital Chassis computer chip. Qualcomm, however, fell 2% in premarket action.
fuboTV (FUBO) – The sports-focused streaming service was upgraded to “outperform” from “neutral” at Wedbush, which sees the stock at a compelling entry point. Wedbush expressed confidence that fuboTV can successfully raise capital and cut its cash burn rate. The stock gained 2% in the premarket.

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The macroeconomic outlook in Europe is bleak as supply disruptions and the impact of Russia’s war in Ukraine on energy and food prices continue to stifle growth, and force central banks to tighten monetary policy aggressively to rein in inflation.
Typically, investors have turned to European markets in search of value stocks – companies that trade at a low price relative to their financial fundamentals.
“I would caution against buying Europe because of the cheaper valuations and interest rate movements,” said Willem Sels from HSBC Private Banking.

Fog shrouds the Canary Wharf business district including global financial institutions Citigroup Inc., State Street Corp., Barclays Plc, HSBC Holdings Plc and the commercial office block No. 1 Canada Square, on the Isle of Dogs on November 05, 2020 in London, England.
Dan Kitwood | Getty Images News | Getty Images

Investors should avoid allocating to Europe in the hunt for value stocks, as the continent’s energy crisis means the risk-reward is still not there, according to Willem Sels, global CIO at HSBC Private Banking and Wealth Management.
The macroeconomic outlook in Europe is bleak as supply disruptions and the impact of Russia’s war in Ukraine on energy and food prices continue to stifle growth, and force central banks to tighten monetary policy aggressively to rein in inflation.

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Typically, investors have turned to European markets in search of value stocks — companies that trade at a low price relative to their financial fundamentals — when trying to weather volatility by investing in stocks offering stable longer-term income.
By contrast, the U.S. offers an abundance of big name growth stocks — companies expected to grow earnings at a faster rate than the industry average.
Although Europe is a cheaper market than the U.S., Sels suggested that the differential between the two in terms of price-to-earnings ratios — companies’ valuations based on their current share price relative to their per-share earnings — does not “compensate for the additional risk that you’re taking.”

“We think that the emphasis should be on quality. If you’re looking for a style bias and are going to make the decision on the basis of style, I think you should look at the quality differential between Europe and the U.S., rather than the growth versus value one,” Sels told CNBC last week.
“I actually don’t think that clients and investors should be looking at making the geographical allocation on the basis of style — I think they should be doing it on the basis of what is your economic and your earnings outlook, so I would caution against buying Europe because of the cheaper valuations and interest rate movements.”

With earnings season set to kick off in earnest next month, analysts broadly expect earnings downgrades to dominate worldwide in the short term. Central banks remain committed to raising interest rates to tackle inflation while acknowledging that this may induce economic strife, and possibly recession.
“We see an economic slowdown, higher-for-longer inflationary pressures, and greater public and private spending to address the short-term consequences and long-term causes of the energy crisis,” said Nigel Bolton, Co-CIO at BlackRock Fundamental Equities.

However, in a fourth-quarter outlook report published Wednesday, Bolton suggested that stock pickers can seek to capitalize on valuation divergences across companies and regions, but will have to identify businesses that will help provide solutions to rising prices and rates.
He argued, for example, that the case for buying bank stocks has strengthened over the last quarter, as hotter-than-expected inflation reports have exerted further pressure on central banks to continue raising interest rates aggressively.
Beware the ‘gas guzzlers’
Europe is racing to diversify its energy supply, having relied on Russian imports for 40% of its natural gas prior to the invasion of Ukraine and subsequent sanctions. This need was exacerbated early this month when Russia’s state-owned gas giant Gazprom cut off gas flows to Europe via the Nord Stream 1 pipeline.
“The simplest way to mitigate the potential impact of gas shortages on portfolios is to be cognisant of the companies with high energy bills as a percentage of income – especially where the energy isn’t provided by renewable sources,” Bolton said.
“The energy needs of the European chemical industry were equivalent to 51 million tonnes of oil in 2019. More than one-third of this power is supplied by gas, while less than 1% comes from renewables.”
Some larger companies may be able to weather a period of gas shortage by hedging energy costs, meaning they pay below the daily “spot” price, Bolton highlighted. Also essential is the capacity to pass rising costs on to consumers.

However, smaller companies without the sophisticated hedging techniques or pricing power may struggle, he suggested.
“We have to be especially careful when companies that may seem attractive because they are ‘defensive’ – they have historically generated cash despite slow economic growth – have a significant, unhedged exposure to gas prices,” Bolton said.
“A medium-sized brewing company might expect alcohol sales to hold up during a recession, but if energy costs are unhedged then it’s hard for investors to be confident on near-term earnings.”
BlackRock is focusing on companies in Europe with globally diversified operations that shield them from the impact of the continent’s gas crisis, while Bolton suggested that of those concentrated on the continent, companies with greater access to Nordic energy supplies will fare better.
If price increases fail to temper gas demand and rationing becomes necessary in 2023, Bolton suggested that companies in “strategically important industries” — renewable energy producers, military contractors, health care and aerospace companies – will be allowed to run at full capacity.

“Supply-side reform is needed to tackle inflation, in our view. This means spending on renewable energy projects to address high energy costs,” Bolton said.
“It also means companies may have to spend to strengthen supply chains and address rising labour costs. Companies that help other companies keep costs down are set to benefit if inflation stays higher for longer.”
BlackRock sees opportunities here in automation that reduces labor costs, along with those involved in electrification and renewable energy transition. In particular, Bolton projected soaring demand for semiconductors and raw materials such as copper to keep up with the electric vehicle boom.

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Hotel reservations in China have surpassed pre-pandemic levels since late June, booking site Trip.com said Thursday.
“Total domestic hotel bookings was around 20% higher than 2019 level in July, and we continued to grow over the 2019 level in August and achieved hyper growth versus 2021,” Cindy Xiaofan Wang, chief financial officer at Trip.com, said during an earnings call Thursday morning.
However, overall revenue in the second quarter marked a 32% decline from the same period a year ago.

BEIJING — Hotel reservations in China have surpassed pre-pandemic levels since late June, booking site Trip.com said Thursday.
Trip.com shares briefly fell by more than 7% Thursday in Hong Kong trading, before recovering slightly to close 4.5% lower. New York-listed shares dropped 8.5% lower overnight, but were up 2.5% in extended trading.

“Overall our domestic China hotel reservation on our platform quickly rebounded and [have] surpassed pre-Covid levels from late June,” Cindy Xiaofan Wang, chief financial officer at Trip.com, said during an earnings call Thursday morning.
“Total domestic hotel bookings was around 20% higher than 2019 level in July, and we continued to grow over the 2019 level in August and achieved hyper growth versus 2021,” she said.
That growth came despite continued sporadic lockdowns and travel restrictions across China to control Covid outbreaks. Tens of thousands of tourists were stranded in the resort area of Hainan province in August due to Covid control measures that canceled transportation off the island.

Staycations drove much of the summer travel increase.
Trip.com said that in the latest quarter, same-city hotel reservations grew by 30% compared with 2019 levels.

However, Wang said the number of domestic air passengers “was down by 70% to 80% versus the 2019 level in recent weeks.”
Trip.com reported second-quarter revenue of 4.01 billion yuan ($572.9 million), topping expectations of 3.58 billion yuan, according to FactSet. Revenue from accommodation reservations and transportation ticketing both beat estimates from FactSet.
However, overall revenue in the second quarter marked a 32% decline from the same period a year ago, and a 2% decline from the prior quarter. The company said the drop was “primarily due to the continued disruptions resulting from the Covid-19 resurgence in China.”

International business boom

For the China-based company, its international offerings proved to be a bright spot.
“The growth in Trip.com was mainly driven by the strong recovery of international flights, and we are happy to see such momentum continued in Q3,” Wang said, noting such air ticket bookings in July were near 90% of 2019 levels.

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In the second quarter, same-country hotel bookings outside China quadrupled versus 2019 levels, she said.
By region, revenue from Europe and American markets has already surpassed 2019 levels, Wang said.
Much of the world has relaxed many Covid travel restrictions, while China has maintained a stringent, so-called dynamic zero-Covid policy. More

Palantir co-founder and CEO Alex Karp believes this period of “deadly” macroeconomic uncertainties will crush many companies with shaky fundamentals.
“Bad times are incredibly good for Palantir … bad times really uncover the durable companies, and tech is going through bad times … interest rates are the reason,” Karp said Thursday on CNBC’s “Squawk Box.” “Will this deadly tidal wave wipe out some companies? Yes it will.”

The Federal Reserve on Wednesday raised benchmark interest rates by another three-quarters of a percentage point to a range of 3%-3.25%, the highest since early 2008. The Bank of England, the Swiss National Bank, and the central banks of Norway, the Philippines, South Africa, Taiwan, Vietnam and Indonesia followed suit, hiking rates to control inflation that has spiraled over the last year.
Palantir is a developer of data analysis software that went public via a direct listing in September 2020 after nearly two decades as a private company. The stock is down nearly 60% this year.
Karp said only those quality companies producing durable goods would survive the hard times.
“You will see that the durable companies that come out of this in three, four years … are largely going to be from America, largely from the West Coast and they are going to be focusing on producing things that actually matter,” Karp said.

The risk of a recession in the U.S. crept higher as the Fed vowed to beat inflation with aggressive rate hikes. The central bank has dialed down its economic projections, predicting higher unemployment and much slower GDP growth.

Karp believes that the situation is even more dire overseas.
“People are scared s—less about energy outside of America,” Karp said. “They are so scared about the macro-political conditions that no one wants to talk about them. Their enterprises are built for a static and unified world of peace. The balance sheets obviously are often not prepared for what’s going to happen, which I think is going to be pretty bad in the next couple of years politically and economically.”

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